Non-resident aliens (NRAs) who invest in US assets may face US capital gains tax. The rules differ from those for US persons—withholding, treaty benefits, and filing requirements all matter. Understanding NRA capital gains tax helps you plan and avoid surprises.
Who Is a Non-Resident Alien?
An NRA is someone who is not a US citizen or green card holder and does not meet the substantial presence test for US tax residency. NRAs are generally taxed only on US-source income—which includes gains from the sale of US real property and, in some cases, US securities.
US Capital Gains for NRAs
US Real Property
Gains from the sale of US real property interests (USRPI) are treated as effectively connected income (ECI) and taxed at normal US rates. FIRPTA (Foreign Investment in Real Property Tax Act) requires withholding of 15% (or higher in some cases) on the gross proceeds. The buyer or closing agent typically withholds. The NRA files a US return to report the gain and claim a credit for withholding.
US Securities (Stocks, Bonds)
Gains from the sale of US stocks and securities are generally not taxable to NRAs if the gains are not effectively connected to a US trade or business. However, certain exceptions apply—e.g., if the NRA is present in the US 183+ days, or for traders. Dividends and interest may be subject to 30% withholding (or lower treaty rate).
Tax Treaties
Many countries have treaties with the US that modify these rules. Treaty benefits can reduce or eliminate US tax on certain capital gains. Proper documentation (e.g., Form W-8BEN) is required to claim treaty benefits.
Compliance
NRAs with US-source income may need to file Form 1040-NR. Failure to file or underpay can result in penalties and interest. Working with a tax professional who understands NRA rules is important.
NRA with US investments? Contact A2N Advisory for guidance on US tax and NRA compliance.
